The Energy Efficient Building Tax Deduction is set to expire and many commercial builders and owners are scrambling to capitalize on the incentive before the window of opportunity closes. The deduction encompasses HVAC systems, lighting systems and the building envelope, and qualifying eco-friendly improvements in these areas can result in a $1.80 tax deduction for every square foot of building space. Owners can apply for the incentive if it has been installed in the last six years and tenants are also eligible to receive the credit if they paid for the upgrade. Although slated to end, some experts believe that it may be extended. For more on this continue reading the following article from National Real Estate Investor.
Owners and managers might not have much time. In just three months, one of the strongest incentives to make buildings more energy efficient will expire.
Commercial real estate owners and managers are hurrying to place energy-saving improvements in service by New Year's Eve in order to claim a $1.80-per-sq.-ft. tax deduction under the Energy Efficient Commercial Building Tax Deduction, Sec. 179d of the tax code. Meanwhile advocates for the commercial real estate advocates are pressing Congress to renew the tax benefit and even expand it to apply more easily to companies like real estate investment trusts.
“There are always talk of an extension,” says Jessica Duran, partner, business tax services for Deloitte Tax LLP.
The Sec. 179d standard has three parts: heating, cooling and ventilation systems; interior lighting systems and the building envelope. The energy improvements will have to be independently certified to cut the energy cost related to these three subsystems. Improvement that meet the standard for all three subsystems can get the full deduction of $1.80-per-sq.-ft., though qualifying for one or more of the subsystem standards can be worth a substantial tax benefit.
Owners can apply for the tax benefit for energy improvements made in the last six years. Tenants can also apply, if they own the improvement.
Though Sec. 179d is one of the biggest, there is also a long list state and local incentives for owners and developers who wish to make their commercial properties more energy efficient. For example, New York State Energy Research & Development Authority offers financial incentives to customers whose buildings are certified for their energy efficiency. San Diego County offers expedited planning approval to green projects. Local utility companies may also offer rebates.
The American Institute of Architects has created a partial list of the types of programs that are available, though experts says the building owners and developers should always check with local officials and utility companies to make sure they don’t miss out on a significant incentive program.
Extension and expansion?
Advocates for the commercial real estate business, including the Real Estate Roundtable and the American Institute of Architects, hope that the Sec. 179d tax benefit may be renewed and even expanded–perhaps after Congress gets past this month’s fighting over the debt ceiling and a possible government shutdown.
If Sec. 179d does win a renewal, it could be an opportunity to extend the program to include real estate investment trusts. REITs currently aren’t very incentivized by the tax benefits offered by Sec. 179d, because REITs generally pay little or no federal income tax.
Past proposals the modify Sec. 179d included a provision that would allow REITs to pass the tax benefit of energy improvements along to their tenants. REITs would also be allowed to recognize a cash grant for energy improvements as a real estate asset. That would help REITs maintain their federal tax status as REITs, and would make the incentives much more valuable.
The Obama Administration is also pressing Congress to change Sec. 179d from a tax deduction into a much more valuable tax credit to incentivize energy-efficient development and rehabs. According to the White House Web site, “The President believes that a new, more flexible tax credit is necessary to optimize investment opportunities for building owners and real estate investment trusts.”
This article was republished with permission from National Real Estate Investor.